Economic Analysis Aids Alcohol Research

Economic research contributes to our understanding of alcohol use and the prevention and treatment of alcohol-related problems in several ways. This article reviews three areas in which the tools of economic analysis have produced significant insights in recent years. First, economic researchers have analyzed the effects of beverage prices and taxation on alcohol consumption and on adverse consequences associated with alcohol use. Second, analyses of the costs and cost-effectiveness of treatment for alcohol use disorders have provided insight into the long-term costs and benefits of alternative approaches to alcoholism treatment. Finally, studies have incorporated economic techniques in estimating the overall magnitude of the burden placed on society by the misuse of alcoholic beverages.


Economic Analysis Aids
Alcohol Re s e a rc h

Economic research contributes to our understanding of alcohol use and the prevention and treatment of alcohol-related problems in several ways. This article reviews three areas in which the tools of economic analysis have produced significant insights in recent years. First, economic researchers have analyzed the effects of beverage prices and taxation on alcohol consumption and on adverse consequences associated with alcohol use. Second, analyses of the costs and cost-effectiveness of treatment for alcohol use disorders have provided insight into the long-term costs and benefits of alternative approaches to alcoholism treatment. Finally, studies have incorporated economic techniques in estimating the overall magnitude of the burden placed on society by the misuse of alcoholic beverages. KE Y W O R D S: economic aspects of AOD (alcohol or other drug) and AOD use; AOD price; sales and excise tax; cost of AODU (AOD use, abuse, and dependence) to business; social and economic costs and benefits of AOD;
insurance cost due to AODU; cost-effectiveness of AOD health services; econometrics T he economic model of consumer behavior suggests that like other consumer goods, the demand for alcoholic beverages falls when prices rise. A large body of re s e a rch shows that this "law of demand" holds for alcoholic b e verages. This means that excise taxe s and other public policies that affect the price of alcohol can influence the demand for alcohol. Because exc e s s i ve alcohol consumption has adverse consequences for health and safety, studies of the consumer response to changes in alcoholic beverage prices are important.

Effects of Changes in Alcohol Prices and Taxes
This section re v i ews recent economic re s e a rch on the relationship betwe e n alcohol prices or taxes and alcohol consumption and related problems. Fo r re v i ews of earlier re s e a rch on these topics see Chaloupka 1993;Chaloupka et al. 1998; Cook and Mo o re 1993; Ke n k e l and Manning 1996; and Leung and Phelps 1993.

Public Policies and Alcohol Prices
Public policies can affect alcoholic beverage prices in several ways. One way is e xcise taxes on alcoholic beverages. An e xcise tax is based on the quantity of alcoholic beverage purchased, in contrast to a sales tax, which is based on the price of a purchased good. The extent to which i n c reases in excise taxes are passed along to consumers rather than absorbed by firms also determines the price of goods. Because little re s e a rch has been conducted in this area, it is unclear how excise taxe s influence prices for alcoholic beve r a g e s .
Some States exe rcise direct influence over alcoholic beverage prices by maintaining monopoly control over the sale of such beverages. Limited evidence suggests that alcoholic beverage prices h a ve, on average, been about the same or only slightly higher in States with monopoly control (Nelson 1990) and that privatization has sometimes, but not always, resulted in lower prices ( Ma c Donald 1986).
When evaluating alcohol price and tax policies, it is important to consider the context provided by other public policies, private market forces, and general economic conditions. For example, alcohol excise tax rates are not ro u t i n e l y i n c reased to compensate for the effects of inflation. As a result, the "re a l" (i.e., inflation-adjusted) tax rates have declined over most of the postwar period, exc e p t for the significant tax increase that took effect in 1991. This erosion of real tax rates has contributed to overall declines in real beverage prices over time (see f i g u re 1).

Alcohol Prices, Taxes, and Consumption
Although consensus exists among re s e a rchers that higher alcoholic beve r a g e prices and taxes result in less drinking and fewer drinking-related problems, the magnitude of consumer response to price or tax changes is more difficult to determine. Economists measure consumer response to price changes by computing the price elasticity, defined as the p e rcentage change in demand that re s u l t s f rom a 1-percent change in price (see t e x t b ox, page 64). Price changes seem to affect the demand for beer less than they affect the demand for other alcoholic beverages. In 1993 re s e a rc h e r s re p o rted that a 1-percent increase in price translated into decreases in demand of 0.3 percent for beer, 1 percent for wine, and 1.5 percent for spirits (Leung and Phelps 1993).
Mo re re c e n t l y, Nelson (1997) re p o rt e d re l a t i vely unre s p o n s i ve price elasticities of -0.16 for beer,-0.58 for wine, and -0.39 for spirits, with -0.52 for an overall price e l a s t i c i t y. His analysis also provided possible explanations for the decline in per capita consumption of alcohol (see figure  2) despite a decline in the real prices o f alcoholic beverages in the United St a t e s i n the same period (see figure 1). Ne l s o n's study showed that the demographic shift to an older population-which consumes less alcohol-outweighed the impact of falling real prices. Other factors, such as a shift to healthier lifestyles, also may help explain the decrease in consumption.

Demand for Alcohol by Youth and Young Adults
A number of recent studies have used i n d i v i d u a l -l e vel data to focus on alcohol demand by youths and young adults, who are considered at particularly high risk for alcohol problems. One study used survey data from the national Monitoring the Fu t u re (MTF) Study of high school seniors to explore the d e t e rminants of alcoholic beverage demand among young adults (Grossman et al. 1998). This study followed more than 7,000 people from 1976 to 1985 and tested an innova t i ve theory of the demand for addictive goods (Becker and Murphy 1988). Previous re s e a rch had accounted for habit formation by exploring past consumption of alcohol as a possible determinant-thro u g h a c q u i red taste or addiction-of curre n t consumption (see, for example, Andrikopoulos et al. 1997). The Be c k e r and Murphy theory of addiction posits that consumers may anticipate that their c u r rent use of alcohol will influence their future demand for it. If so, expected future consumption is also a possible determinant of current alcohol demand, and factors that can be anticipated to affect future consumption also h a ve an impact on current consumption choices. The policy implication of this t h e o ry is that the long-run demand for a d d i c t i ve goods is actually more re s p o ns i ve to price changes than the short -ru n demand (Grossman et al. 1998). The results suggest that raising alcohol prices would be an effective policy to re d u c e alcohol consumption among yo u t h .
In contrast, another study found that beer taxes have a re l a t i vely small and statistically insignificant effect on teen drinking (Dee 1999). Using data f rom the MTF Study for 1977 thro u g h 1992, Dee examined the effects of mini m u m legal drinking age laws and beer t a xes on the pre valence of teen drinking in three categories (1 or more drinks in the past month, 10 or more drinks in the past month, 5 or more drinks in a row in the past 2 weeks). The re s u l t s suggested that raising the legal drinking age above 18 significantly reduced the number of high school seniors in each drinking category. Howe ve r, within-State comparisons found beer tax rates to have no significant effect in re d u c i n g these drinking rates. Additional re s e a rc h is needed to clarify how taxes and other factors affect various patterns of drinking among different gro u p s .
College students as a group are at p a rticularly high risk for alcohol-re l a t e d p roblems. To estimate alcohol demand for this population, Chaloupka and Wechsler (1996) merged drinking data f rom 17,000 college students with m e a s u res of beer prices and an index of drunk driving laws pre vailing in the locations of the colleges. The re s u l t s suggested that college students we re less re s p o n s i ve to alcohol prices than other groups. The re s e a rchers did find, h owe ve r, that more seve re drunk driving penalties tended to reduce both drinking and binge drinking. These effects we re found among underage and older students, both male and female.

Alcohol Taxes and Traffic Fatalities
Re s e a rch indicates that higher beve r a g e t a xes affect not only alcohol consumption but also various alcohol-related pro blems, such as traffic fatalities. Although the previous discussion suggests that overall demand for alcohol is only moderately re s p o n s i ve to price changes, a number of studies have found that higher alcohol taxes are linked to lowe r traffic fatality rates (Ruhm 1996; Ph e l p s 1988; Kenkel 1993). Ruhm (1996) found that for eve ry 1 p e rcent increase in the price of beer, the traffic fatality rate declined by nearly the same pro p o rtion. He found nearly identical results using fatalities per total ve h icle miles driven. The study also showe d that rates for nighttime fatalities and for people aged 18 through 20 we re eve n m o re re s p o n s i ve to an increase in beer prices. This study, as well as a substantial body of prior re s e a rch, suggests that a tax increase may be a useful tool to re d u c e traffic fatalities, particularly among youths and young adults. One re c e n t s t u d y, howe ve r, has suggested that changes in fatality rates that have been attributed to beer taxes might be linked m o re strongly with other factors omitted from previous analyses (Dee 1999). C l e a r l y, further re s e a rch is needed.
In addition to investigating price effects among youths, re s e a rchers have studied price effects among other subg roups with a high risk of traffic accidents: binge drinkers and re g u l a r, heavy drinkers. Sloan and colleagues (1995) found that a 10 perc e n t i n c rease in the price of alcoholic beve rages would decrease binge-drinking episodes (defined as consuming five or m o re drinks on one occasion in the past month) by eight percent. In addition, liability and insurance rules we re m o re effective than criminal sanctions in reducing binge drinking. Another study found that persons who drank e x t remely heavily we re unre s p o n s i ve to price increases (Manning et al. 1995), suggesting that price increases would h a ve a limited effect on traffic crashes among this gro u p.
O verall, the evidence indicates that prices have modest effects on ove r a l l consumption and somewhat more substantial effects on traffic crash fatality rates. Small effects on consumption may have substantial effects on outcomes like traffic fatalities if, for example, higher prices reduce the number of drinks consumed on a given occasion of heavy drinking. Clarifying the n a t u re of price effects on differe n t aspects of consumption and on healthrelated outcomes remains a critical task for future re s e a rc h .

Alcohol Demand and Marijuana Demand
The idea of using tax increases to re d u c e alcohol use raises concerns that such a policy may cause consumers to use less alcohol but increase marijuana use in response to increased beverage prices. Two recent studies have examined this issue, with contrasting results. One study found that alcohol and marijuana we re economic complements (Pacula 1998), meaning that the goods tend to be used t o g e t h e r, such as gin and tonic water. Thus, the re s e a rchers estimated t h a t doubling the beer tax would re d u c e t h e use of marijuana as well as alcohol. T h i s finding should be viewed with caution, h owe ve r, because States with lower beer t a xes may also have more tolerant social attitudes tow a rd other substance use.
Another study found evidence that alcohol and marijuana we re substitutes (i.e., an increase in the price of one causes a shift in consumption and an i n c rease in demand for the other)

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Measuring Consumer Response to Price Changes
When the prices of goods rise or fall, the quantity of goods that consumers choose to purchase tends to change in response. Economists estimate the "price elasticity of demand" to measure consumers' re s p o n s i veness to changes in prices. Estimates are computed with the following formula: Price elasticity = % change in quantity demanded (+ or -) change in price (+ or -) Example: A 5% price drop leads to a 10% increase in quantity demanded: +10% = -2 -5 % Some features of elasticity measures include the follow i n g : • Price elasticities are negative for almost all goods, because consumers tend to choose to purchase greater quantities of goods at lower prices and f ewer at higher prices.
• Elasticities of less than -1.0 indicate that demand is re l a t i vely re s p o n s i ve to changes in price (also called "e l a s t i c"). This is illustrated in the example show n .
• Elasticities in the range between -1.0 and ze ro indicate that demand is re l a t i vely unre s p o n s i ve (also called "inelastic"). For example, if a price d rops 5 percent and the quantity demanded increases only 2 percent, the price elasticity is -0.4. (Chaloupka and Laixuthai 1997). The study found that raising both the price of beer and the minimum legal drinking age reduced youth demand for alcohol. Fu rt h e r, the results suggested that marijuana decriminalization reduced yo u t h drinking. Under decriminalization, youth face lower potential costs of marijuana use, so the pattern found in this study suggested that youths substitute marijuana and use less alcohol in St a t e s w h e re marijuana is decriminalized. In addition, the re s e a rchers found that higher marijuana prices increased alcohol demand, which is consistent with the conclusion that the two substances a re substitutes. Gi ven the conflicting findings betwe e n these two studies, further re s e a rch is needed to clarify the nature of the re l ationship between the demands for alcoholic beverages and marijuana.

Benefits and Costs of Taxation
The bulk of re s e a rch evidence show s that higher alcohol taxes or prices lead to reductions in alcohol consumption and in the adverse consequences of alcohol abuse. Studies of "optimal taxat i o n" provide a framew o rk for determining how heavily alcoholic beve r a g e s should be taxed by balancing the benefits of alcohol taxation with the costs that alcohol taxes impose on moderate drinkers and alcoholic beverage prod u c e r s .
Se veral studies have concluded that substantial increases in alcohol taxe s would yield social benefits (e.g., re d u ctions in alcohol-related health pro blems) that exceed their costs (Ma n n i n g et , 1991Pogue and Sgontz 1989). Other re s e a rch (Heien 1995(Heien -1996, howe ve r, concluded that alcohol tax levels we re too high. Heien suggested that this conclusion differed from those of previous studies for several re a s o n s , including the timing of the study and its assumption that drinkers have lowe r health care costs than do nondrinkers. Howe ve r, assessing the net effects of alcohol consumption on health is difficult, and assessments may va ry over the life span (Dufour 1996). For example, l ow -l e vel alcohol consumption may generate net health benefits for some people, but even low levels of consumption may pose risks to others, such as teenagers (Dufour 1996). Fu rther re s e a rc h is needed to explore the benefits and costs of alcohol taxation. For example, none of the studies mentioned in this section measured the potential benefits alcohol taxation may create by re d u c i n g violent behavior (Cook and Mo o re 1993).
Another important question is how the benefits and costs of alcohol taxation are distributed across the population. In assessing the fairness of a particular tax, one method is to consider the extent to which the burden of the tax falls dispro p o rtionately on lowe r income members of society. A tax that consumes a larger share of the income of poorer households is termed "re g re ss i ve," whereas a tax that consumes an i n c reasing fraction of income as income rises is considered "p ro g re s s i ve." A study by the Congressional Budget Of f i c e ( Sa m m a rtino 1990) found that, acro s s households, expenditures on alcoholic b e verages increased as income incre a s e d , but at a slower rate. As a result, lowe r income households paid less in alcohol e xcise taxes than did higher income households on average, but the taxe s n e ve rtheless consumed a larger pro p o rtion of income in lower income households. A more recent study (Lyon and Schwab 1995), found that alcohol taxe s we re still re g re s s i ve, but slightly less so, when measured with respect to lifetime income instead of current income.
A related issue is employment and concerns that alcohol tax increases will h u rt workers whose livelihoods depend on the production and sale of alcoholic b e verages. Howe ve r, the overall level of e m p l oyment in the United States is determined by macroeconomic conditions, not adjustments in the tax rates on specific industries. A tax incre a s e could cause a permanent job loss in the alcohol industry, but re s e a rch on labor economics suggests that displaced workers would almost certainly find employment elsew h e re eve n t u a l l y. Wo rker displacement remains costly not only during the period of unemployment but in the long term, because displaced workers appear to earn less on their new jobs (Jacobson et al. 1993;Ruhm 1991). These transitional costs should be included as an extra cost of incre a s i n g alcohol taxes, but most or all of the e m p l oyment losses in the alcohol indust ry will eventually be offset by employment gains in other sectors of the economy (Kenkel and Manning 1996).

Cost Research on Alcoholism Treatment
Re l a t i vely little re s e a rch has been conducted on the cost of alcohol tre a t m e n t , but important developments have o c c u r red in recent years. Re s e a rc h e r s a re exploring whether people who undergo alcoholism treatment have lowe r health care expenditures afterw a rds and whether some treatment settings are m o re cost-effective than are others. Other questions are also being conside red, such as whether shorter or longer periods of inpatient treatment are more cost effective and whether treatment cost savings in the short term might lead to a higher probability of relapse, and c o n s e q u e n t l y, greater long-term tre a tment costs. Recent years have bro u g h t i m p rovements in the methods used to a n a l y ze the costs of alcoholism tre a t m e n t . These improvements hold considerable p romise for the further development of the field.

Research Findings
Early re s e a rch on the cost of alcoholism t reatment centered on general themes (see Jones and Vischi 1979;Annis 1986;Holder et al. 1991; and Fi n n e y et al. 1996 for re v i ews). Those themes included whether alcoholism tre a t m e n t reduced overall health care costs, and whether such reductions we re sufficient to cover treatment costs. Mo re re c e n t studies, discussed below, continue to examine other topics raised in earlier re s e a rch. These include cost offsets, or the decrease in total health care costs after adjustment for alcohol tre a t m e n t costs, and the cost-effectiveness of diff e rent treatments. The latest re s e a rc h focuses on new topics, such as the length of treatment and long-term costs. Finney and Monahan (1996), re a n a l y ze d the cost-effectiveness literature originally e valuated by Holder and colleagues (1991). The newer study added 3 tre a tment modalities, bringing the total to 36, and used a pro c e d u re for assessing outcomes that rated the strength of each study's findings on the basis of the re s e a rch methods used. The re a n a l y s i s confirmed some of the findings of the original re v i ew, such as the effective n e s s of some treatment modalities (e.g., social skills training, the community re i nf o rcement approach, behavioral marital t h e r a p y, and stress management training) and the ineffectiveness of other modalities (e.g., residential milieu tre a tment and general counseling). Se ve r a l t reatment modalities, including brief m o t i vational counseling, self-contro l training, and use of Antabuse (a dru g that creates an ave r s i ve reaction to alcohol), we re found less effective using the revised methods.

Cost-Effectiveness of Different Treatment Modalities
O verall, the range of effective n e s s a c ross all 36 modalities was reduced in the newer re v i ew. The reanalysis did not show a relationship between effect i veness and cost. When only those 26 modalities that had been documented by three or more studies we re included, g reater cost was related to lower effect i veness, but this relationship was not statistically significant.
Later re s e a rch examined the costs of specific treatment modalities. In one s t u d y, investigators calculated the costs for each of the three treatments compare d in a project called Matching Alcohol Treatments To Client He t e ro g e n e i t y ( Project MATCH) (Cisler et al. 1998). Project MATCH was an 8-ye a r, multisite clinical trial sponsored by NIAAA that investigated cognitive -b e h a v i o r a l therapy (CBT), motivational enhancement therapy (MET), and 12-step facilitation (Project MATCH Re s e a rc h Group 1997). Each of the therapies p roduced generally comparable tre a tment outcomes, raising the question whether any of these equally effective t reatments could be offered for a lowe r cost. Findings showed that average perpatient costs for MET we re the lowe s t , at $537, compared with $904 for CBT and $956 for 12-step facilitation. The number of patient contact hours diff e red across the therapies, from 4 hours for MET to 12 hours for both 12-step facilitation and CBT. When costs we re computed per hour of patient contact rather than per patient, MET was actually more expensive ($134 per contact hour) than either CBT ($75 per contact hour) or 12-step facilitation ($80 per contact hour).
Another study compared tre a t m e n t costs over a 3-year period for alcoholics who chose to attend Alcoholics Anonymous (AA) with those who sought p rofessional outpatient tre a t m e n t ( Hu m p h reys and Moos 1996). The study found that treatment costs we re l ower for the AA group over the course of the study and that outcomes we re similar for both groups, indicating that vo l u n t a ry AA participation may significantly reduce treatment costs without c o m p romising outcomes.

Cost Offsets
Recent studies also have continued to i n vestigate cost offsets, or net re d u c t i o n s in health care costs attributable to alcoholism treatment. One study of health insurance claims generated by employees and dependents who re c e i ved alcoholism treatment showed that after the initiation of treatment, health care costs i n c u r red by alcoholics declined, but that differences in these costs from pret reatment levels we re re l a t i vely modest ( Goodman et al. 1997). The re s e a rc h e r s found that cost offsets we re greater for clients who initially re c e i ved inpatient rather than outpatient tre a t m e n t .
Another re s e a rch group examined the effect on legal costs, along with health care costs, of behavioral marital therapy for alcoholism treatment patients ( O ' Fa r rell et al. 1996a , b). The re s u l t s a re only suggestive, because of the small number of subjects included in the study. The analysis indicated that behavioral marital therapy decre a s e d both health care and legal costs and that the savings exceeded the cost of d e l i vering the therapy. Behavioral marital therapy was not found to be more c o s t -e f f e c t i ve in prolonging abstinence f rom drinking than was simple individual counseling, but was just as cost-effective as individual counseling in pro m o t i n g marital adjustment. In addition, when special sessions to pre vent relapse we re added to behavioral marital therapy, i m p rovements occurred in abstinence f rom drinking and marital adjustment outcomes. The additional relapse prevention therapy did not, howe ve r, lead to greater savings in health care or legal costs (O'Fa r rell et al. 1996b) .

Length of Treatment
Although the re l a t i ve merits of inpatient versus outpatient treatment continue to be examined (Long et al. 1998), most o b s e rvers seem to have accepted the conclusions of Finney and colleagues (1996) that outpatient treatment should be encouraged for most patients, but access to inpatient treatment should be retained for those patients who need it. The focus of cost-effectiveness re s e a rc h has accordingly shifted from the issue of inpatient versus outpatient care tow a rd consideration of other treatment program dimensions, such as shorter ve rsus longer periods of tre a t m e n t .
One re s e a rch group used information f rom 98 U.S. De p a rtment of Ve t e r a n s Affairs (VA) inpatient treatment programs to identify the characteristics of the most cost-effective clinics (Ba r n e t t and Swindle 1997). Their principal outcome measure was whether patients we re readmitted to treatment at any VA hospital in the United States within 180 days of discharge. They found that both treatment cost and outcome we re related to program size, intended length of stay, ratio of staff to patients, and client t reatment histories. In addition, they concluded that 21-day programs we re m o re cost-effective than 28-day pro g r a m s .
A 1998 study of 12 inpatient alcoholism treatment facilities for U.S. Navy personnel yielded similar re s u l t s (Trent 1998). A planned re d u c t i o n f rom a 6-week to a 4-week tre a t m e n t p rogram allowed re s e a rchers to conduct a natural experiment of tre a t m e n t outcomes under the two plans. Pa t i e n t s t reated in the 4-week program achieve d outcomes similar to those treated in the 6 -week program. The re s e a rchers also noted that participation in afterc a re (principally attendance at AA) was the best predictor of treatment outcomes at 1 -year follow -u p.

Long-Term Costs
Alcoholism is a chronic disease. It is t h e re f o re reasonable to expect that any person with alcoholism may experience s e veral episodes of treatment, separated by periods of sobriety, over the course of a lifetime. There f o re, treatment cost re s e a rch examines the long-term, or lifetime, costs for affected individuals. Such re s e a rch may determine if saving money in the near term is short s i g h t e d because such savings lead to gre a t e r costs over the long run. For example, although inpatient treatment may not seem cost-effective in the short term, if it reduces episodes of later care, it may c o m p a re favorably with other tre a tment strategies over the long term.
Cost re s e a rchers are starting to inve st i g a t e long-term costs. One re s e a rc h g roup has distinguished between the alcohol treatment costs incurred during the first 6 months of treatment and costs incurred later (Goodman et al. 1996). One such study of 879 insure d e m p l oyees and re t i rees who underwe n t alcoholism treatment found that the t reatment setting (inpatient vs. outpatient) during the first 6 months had no bearing on either the need for or the total costs of later treatment (Go o d m a n et al. 1996). Mo re ove r, the intensity of t reatment during the first 6 months had no effect on later treatment costs for patients diagnosed as alcohol abusers, although more intense tre a tments in the initial 6 months slightly reduced later treatment costs among patients diagnosed as alcohol dependent. Treatment after the 6-month m a rk was more common among alcohol-dependent patients (as opposed to alcohol abusers) and those who also abused other drugs. Treatment costs b e yond the first 6 months we re gre a t e r for those with drug abuse pro b l e m s , l i ver disease, or coexisting psyc h i a t r i c d i s o rders, largely because these factors i n c reased the likelihood that long-term t reatment would occur in an inpatient rather than an outpatient setting.
These results seem to indicate that near-term savings can be achieve d without triggering greater costs in the long run. This finding runs counter to an earlier finding that returning to t reatment (over a 2-year window) was less likely among patients initially tre a t e d in an inpatient hospital setting than among those attending AA (Walsh et al. 1991). The tradeoff between nearterm and later treatment costs clearly re q u i res continued re s e a rch attention.

New Developments in Measuring Costs
Perhaps the most important new dire ction of recent studies is the deve l o pment of improved methodological tools for conducting cost re s e a rch. Pre v i o u s l y, t reatment cost studies have generally not been based on re c o g n i zed economic principles for assessing cost. In addition, comparison of results across studies has been difficult. Im p roving re s e a rc h methods and increasing standard i z a t i o n will help advance this area of re s e a rc h .
T h ree significant recent deve l o pments in the improvement of cost meas u rement methodologies have been (1) the guidelines contained in the U.S. Public Health Se rv i c e's (PHS) Cost-Ef f e c t i veness in Health and Me d i c i n e ( Gold et al. 1996;see also Russell et al. 1996;Siegel et al. 1996;Weinstein et al. 1996); (2) 1998a , b) .
The PHS guidelines contain a set of recommendations for conducting coste f f e c t i veness studies (Gold et al. 1996;see also Russell et al. 1996;Siegel et al. 1996;Weinstein et al. 1996). In c l u d e d in these guidelines are re c o m m e n d a t i o n s to measure costs to the entire society rather than from the perspective of a g i ven tre a t m e n t -d e l i vering organization; to include a "re f e rence case" in re s e a rch re p o rts or an analysis conducted according to a common, stand a rd set of economic assumptions to facilitate comparison with other studies; and to identify ethical pro b l e m s that may arise in the course of analysis.
The DATCAP takes a differe n t a p p roach (French and Mc Ge a ry 1997;French et al. 1997). Its intent is to provide a pro c e d u re for measuring substance abuse treatment costs without placing a substantial burden on the t reatment center staff. The pro c e d u re m e a s u res the market value of all goods and services expended in prov i d i n g t reatment. Costs are estimated fro m the perspective of the provider organization rather than from the perspective of the client, of third -p a rty paye r s (such as insurance companies), or of the society at large. These cost-estimating pro c e d u res have been applied to e m p l oyee assistance programs (Bray et al. 1996;French et al. in press) and to d rug abuse treatment programs (Fre n c h et al. 1996(Fre n c h et al. , 1997, but applications specific to alcoholism treatment have not yet appeared in the literature . The Uniform Accounting Sy s t e m and Cost Re p o rting for Substance Ab u s e Treatment Providers was also deve l o p e d m o re as a tool for treatment prov i d e r s than for academic re s e a rchers (Caliber 1 9 9 8a , b). Like DATC A P, it measure s costs from the perspective of the prov i d e r organization. The Uniform System differs from DATCAP by focusing on accounting costs, which are based on a treatment pro g r a m's actual expendit u res for goods and services used in p roviding treatment. These differ fro m economic costs (market value costs) w h e n e ver the treatment provider has access to free or subsidized re s o u rc e s , such as volunteer labor, the use of fre e or subsidized space, or donated food ( Dunlap and French 1998). The purpose of a study and the perspective of its authors determine which of the two systems is more desirable. Most tre a t m e n t p roviders would probably be more c o m f o rtable with accounting costs, as these most closely resemble the budgets that will be needed to provide the services. Re s e a rchers, on the other hand, a re more likely to prefer economic costs, since conclusions based on the comparison of costs between pro g r a m s should not be confounded by uneve n access to free or subsidized re s o u rc e s .
By providing templates for the meas u rement of treatment costs, the above t h ree systems promise to facilitate future re s e a rch by (1) making any cost study easier to conduct by providing model c o s t -m e a s u rement systems and (2) p roviding standardization that should enable and encourage comparison b e t ween studies.

The Economic Costs of Alcohol Abuse
The burden imposed by a disease can be measured in many ways, including the number of deaths attributed to it, the total number of cases, the number of new cases that occur in a given ye a r, hospitalization rates, potential years of life lost, and other measures that combine mortality and quality-of-life information. Another approach to assessing the burden of disease is to estimate the associated "cost of illness" (or COI), which expresses the multidimensional impact of a health problem in dollars. A COI study of a particular health p roblem usually includes estimates of the costs of health care services, losses in productivity from illness and pre m at u re death, and other expenditures and re s o u rce losses that can be attributed to the health condition. Estimates for diff e rent diseases often are not dire c t l y comparable to one another because of variations in methods, data sourc e s , and underlying assumptions (Na t i o n a l Institutes of Health 1997).
O ver the past two decades, five major studies have used the COI framew o rk to estimate the economic costs of alcohol a b u s e 1 in the United States (Be r ry et al. 1977;Cru ze et al. 1981;Ha rwood et al. 1984Ha rwood et al. , 1998Rice et al. 1990). These studies estimate the costs of alcohol abuse including health care costs, productivity losses, and additional costs, such as those associated with alcoholrelated crime and motor vehicle crashes. In the most recent of these COI studies, re s e a rchers estimated the overall economic cost of alcohol abuse at $148 billion for 1992, the most recent year for which adequate data we re available at the time of the study (Ha rwood et al. 1998). Making adjustments for population growth and inflation, the authors also projected their estimates forw a rd to 1995, for which the overall estimated cost was $166.6 billion, and to 1998, for which the overall estimated cost was $184.6 billion, or roughly $683 for e ve ry man, woman, and child living in Mo re than 70 percent of the estimated costs of alcohol abuse we re attributed to lost productivity ($134.2 billion), most of which resulted from alcoholrelated illness or pre m a t u re death. The remaining estimated costs included health care expenditures to treat alcohol use disorders and the medical consequences of alcohol consumption ($26.3 billion, or 14.3 percent of the total); pro p e rty and administrative costs of alcohol-related motor ve h i c l e crashes ($15.7 billion, or 8.5 perc e n t ) ; and various criminal justice system costs of alcohol-related crime ($6.3 billion, or 3.4 percent). A breakout of the estimated costs for 1992 and the associated projections for 1998 are show n in the table.
Be f o re the latest re p o rt, the economic costs of alcohol abuse we re last estimated in 1990 using data for 1985 (Rice et al. 1990). The estimate by Ha rwood and colleagues for 1992 is 42 percent gre a t e r than the estimate by Rice and col- leagues, even after accounting for expected increases due to inflation and population growth. Howe ve r, the estimate for 1992 is almost exactly equal to the average of the estimates fro m four other major studies, the Rice study included, dating back to 1977 (adjusting each of the earlier estimates for inflation and population growth). Although the estimates for 1985 and 1992 we re d e veloped using similar appro a c h e s , Ha rwood estimated that more than 80 p e rcent of the increase re p o rted in the n ewer study could be attributed to diff e rences in data and methodology rather than to real increases in alcohol abuse or its consequences.

Distribution of the Burden of Costs
Ha rwood and colleagues (1998) included in their re p o rt an estimate of how the b u rden of the costs of alcohol abuse is distributed across various segments of s o c i e t y. This analysis, based on the data for 1992, estimated that about 45 perc e n t of the estimated total cost was borne by alcohol abusers and their families, almost all of which was the result of lost or reduced earnings. About 20 percent of the total estimated cost of alcohol abuse was borne by the Federal gove r n m e n t , mostly in the form of reduced tax re venues resulting from alcohol-re l a t e d p roductivity losses, and 18 percent of the total was borne by State and local g overnments, in the form of reduced tax re venue and criminal justice and motor ve h i c l e -related costs. Pr i vate insurance arrangements (including life, health, auto, f i re, and other kinds of insurance) should e re d 10 percent of the total estimated cost, primarily in the areas of health care costs and motor vehicle crashes. Six perc e n t of the total cost was borne by victims of alcohol-related crimes (including homicide) and by the nondrinking victims of alcohol-related motor vehicle crashes.

Components of the Cost of Alcohol Abuse
The total estimated costs of alcohol abuse, constructed from estimates of n u m e rous smaller categories, group into two main kinds of cost: the health care costs of alcohol abuse and pro d u c t i v i t y losses. Estimates for 1998 placed the health care costs of alcohol abuse at $26.3 billion (comprising 14.3 perc e n t of the total estimated cost of alcohol abuse). These estimates include both the costs of treating alcohol abuse and dependence ($7.5 billion), and the costs of treating the various adverse medical consequences of alcohol consumption ($18.9 billion). Productivity losses, estimated at $134.2 billion (72.7 percent of the total) in 1998, includes losses fro m a l c o h o l -related illness ($87.6 billion), p re m a t u re death ($36.5 billion), and crime ($10.1 billion). Other factors contributing to the total estimated costs of alcohol abuse include insurance and legal costs ($15.7 billion) and the legal, p ro p e rt y, and administrative costs of a l c o h o l -related crime ($6.3 billion).

Limitations and Caveats
As with earlier studies of economic costs, the latest re s e a rch confirms that alcohol abuse imposes a heavy burd e n on society. Although re s e a rchers estimating the economic costs of alcohol abuse attempt to be as compre h e n s i ve as possible, and although the magnitude of costs re vealed in these estimates is undeniably enormous, there are several important caveats that apply to the i n t e r p retation of these estimates. First, the estimates should not be c o n s i d e red precise measures. Good data a re not readily available for many of the a reas in which costs are incurred. So m e a reas, such as productivity losses, employ quantities that are fundamentally unobs e rvable, and thus must be based on theo retical and statistical inference. Se c o n d , these estimates are not able to capture all the significant aspects of the alcoholrelated burden. Fo remost among these is the human suffering endured by individuals with alcohol-related problems and their families. Fi n a l l y, these estimates of the economic costs of alcohol abuse are not sufficient by themselves to justify the use of one method over another to reduce such costs. Other factors must be considered before any cost-re d u c i n g m e a s u res can be taken; the estimates are m e rely one piece of a larger puzzle.

Conclusion
Additional alcohol re s e a rch using economic analyses is needed to complement the strides that have already been made. For example, recent studies have a d d ressed how alcohol prices and taxe s influence alcohol consumption, confirming earlier findings that consumers respond to changes in the price of beer, wine, and spirits. Di s c repancy still exists, h owe ve r, as to how large those effects may be. The weight of evidence suggests that the effects are re l a t i vely modest, with a 1-percent increase in price expected to lead to less than a 1-percent decre a s e in consumption. Other studies have a d d ressed whether higher alcohol prices or taxes reduce drunk driving and alcoholrelated traffic fatalities. Recent re s e a rc h confirms that higher taxes can contribute to these public health goals. Im p rove m e n t s in methodology and data collection should enable future re s e a rch efforts to reconcile the magnitudes of the estimated effects of taxes on consumption with the larger estimated effects of taxe s on traffic fatalities. In addition, future re s e a rch will need to clarify whether i n c reases in alcohol prices or taxes can help reduce youth drinking, a population that is at special risk for alcohol-re l a t e d p roblems.
Re s e a rch has also shown that more ex p e n s i ve treatment does not necessarily lead to better outcomes. Also, re s e a rc h s h ows that cost offsets are achieved f o l l owing treatment: health care cost reductions among those treated for alcoholism compensates sufficiently for the cost of the treatment. Re s e a rc h e r s also have demonstrated that, while some patients will re q u i re inpatient therapy, for many patients, outpatient tre a t m e n t may be more cost-effective. With such questions generally re s o l ved, re s e a rch is n ow focusing on other topics, such as comparing the cost-effectiveness of short e r versus longer inpatient treatment, and examining whether short-term savings f rom outpatient treatment are balanced against treatment costs that might be re a l i zed in the long term. Such re s e a rc h should benefit immensely from the i n c reasing standardization of methods for measuring treatment costs.
Fu rther re s e a rch has confirmed that alcohol abuse imposes a heavy burd e n on society, with health care, tre a t m e n t , p roductivity losses, pre m a t u re death, crime, and legal costs in the billions of dollars. Re s e a rchers have estimated that 45 percent of these costs are borne by the abusers and their families, and 20 p e rcent are borne by the Federal government. While re s e a rchers attempt to be compre h e n s i ve when estimating economic costs, estimates in areas such as productivity losses are based on statistical inference. Fu rt h e r m o re, the estimates cannot capture all the import a n t aspects of the alcohol-related burd e n . As a result, other factors must be taken into account before any action is taken to reduce costs; estimates must be v i ewed as part of a larger whole. s